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Wednesday, March 31, 2010 12:14 PM


BLS Live Question and Answer Session on Friday, April 2nd


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The BLS has a Live Question and Answer session this Friday between 9:30 and 10:30 EST.

Requirements

1. Access to http://www.coveritlive.com
2. Version 10 or later of the Adobe Flash Player

You can submit questions in advance via Question and Answer Feedback Form

Please save your question in case something goes wrong with the form or you need to resubmit it.

Seasonal Adjustment Amplitude

My question is on the the increasing amplitude of BLS seasonal adjustments as noted in BLS Seasonal Adjustments Gone Haywire; 11% Unemployment Coming by May?

Seasonally Unadjusted Unemployment vs. Unadjusted Unemployment



click on chart for sharper image

The above chart shows how the BLS smoothes the unemployment rate to account for seasonal trends. It also give as hint as to an increasing magnitude of that smoothing.

To highlight the month to month variances, I added a column to show the amplitude of the seasonal adjustments. The result is this chart.

Unadjusted Unemployment Minus Seasonally Adjusted Unemployment



click on chart for sharper image

Seasonal Adjustment Highlights

  • There is always a big BLS adjustment in January
  • There is always a reversion to the mean that overshoots to the downside between March and April
  • There is always a secondary rebound back above the 0.0% line in July, followed by a smaller overshoot to the downside in October.

The problem is in the increasing amplitude of these swings, in both directions.

The BLS attempts to smooth trends in unemployment with seasonal adjustments but those swings have increasing amplitude for the last two years. One explanation I have heard is the BLS is assuming a normal population basis and applies seasonality to that.

If so, I believe their methodology is distorted by the fact there are now 14.9 million unemployed. One should not assume the same seasonal bounce with so many out of work.

Without an explanation from the BLS though, we are guessing at the cause. If the BLS has an explanation, I will post it.

Addendum:

Here is the exact question I submitted. ....
I understand the point of seasonal adjustment to smooth out seasonal hiring variances. And for 6-8 straight years the "adjustment" in January as calculated by the difference between the seasonal and unadjusted unemployment was about .4% to .5%

However, the last two years it was a full 1%.
I have a chart that shows this:
http://4.bp.blogspot.com/_nSTO-vZpSgc/S2-_RZ39KPI/AAAAAAAAH0c/II-6ds1VelA/s1600-h/seasonally+Adjusted+vs+unadjusted+unemployment2.png

I discuss in more detail here:
http://globaleconomicanalysis.blogspot.com/2010/03/bls-live-question-and-answer-session-on.html

How do you account for these big out of the norm by .5% or so adjustments in January for the last two years?

My expectation is this year will be revised away later just as happened in 2009 with the result being January 2010 unemployment is understated by .5% minimum.

Of course the census hiring this year will add to the problem of figuring out exactly what is going on.

Mish
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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